Chapter 24
Practical Aspects of the Listing Process
INTRODUCTION
This chapter covers the relationships that come into existence when a real estate company gets a listing and the duties and responsibilities that result from those relationships. The descriptions of the sales associate’s responsibilities are illustrative and do not attempt to cover every specific situation. When doubt arises concerning a duty or a responsibility in specific circumstances, the sales associate should always consult his or her broker.
INDIVIDUALS IN A LISTING AGREEMENT
As a contract, the listing agreement must contain all the essential features of a valid contract, and the broker or broker’s agent and all the owners of the property must sign it. In Georgia, the general law of agency governs the relationship between the parties to the listing agreement, as well as the Brokerage Relationships in Real Estate Transactions Act (BRRETA), which became law in 1993. The listing agreement involves two parties, the seller of the property who is the principal and the broker who is the agent. The sales associate in this relationship is the agent of the broker and is legally responsible to the broker (who is legally responsible to the seller). Therefore, the broker and the sales associate represent the seller, even though the sales associate may spend most of his or her time with the prospective buyer. The sales associate is responsible to the buyer only when the buyer has retained the sales associate’s broker to represent him or her. This agency relationship is the buyer’s broker relationship that arises from a contract other than the listing agreement. The following is a summary of the various parties to a listing agreement:
| (a) | THE SELLER (ALSO KNOWN AS THE PRINCIPAL) – The seller is the owner of the property and retains the broker for a specified time to find a ready, willing and able buyer for that property at the list price or at some other acceptable price. When the broker performs this service, the seller pays the commission agreed upon in the listing agreement. | |
| (b) | THE BROKER (AGENT) – The broker enters into the listing agreement with the seller and receives a fee if the broker finds the ready, willing, and able buyer for the seller’s property. According to Georgia license law, only a broker has the authority to enter into listing agreement. So, although a sales associate may find the seller who signs the listing agreement, the listing is a contract between the seller and the broker. | |
| (c) | THE SALES ASSOCIATE (AGENT FOR THE BROKER) – The sales associate is indirectly a party to the listing agreement, since he or she is the agent for the broker and must always act on behalf of the broker in carrying out the responsibilities of the listing. Whenever a broker lists a seller’s property, the law requires that the broker protect the seller’s best interest. Since the broker hires the sales associate, the sales associate has the same duty to protect the seller’s interest. | |
| (d) | THE BUYER (CUSTOMER) – The buyer is not a party to the listing agreement and, therefore, is not a client of the broker or sales associate, although the buyer is the person with whom the sales associate will spend much of his or her time. While the sales associate does not represent the buyer under a listing agreement, both the broker and the sales associate have a responsibility to be fair and honest in dealing with the buyer. |
THE SALES ASSOCIATE’S RELATIONSHIP WITH THE BROKER
A real estate sales associate working as an agent for the listing broker owes the same duties and obligations to the seller as the broker. Therefore, a listing arrangement involving a broker and the broker’s sales associates contains two agency relationships, one between the broker and seller, and one between the broker and the sales associate. The relationship between the sales associate and the broker may be: (a) employer and employee, or (b) employer and independent contractor.
| (a) | EMPLOYER/EMPLOYEE RELATIONSHIP – Under this arrangement, the broker has more control of the sales associate’s activities. The broker also has more responsibilities toward the sales associate and various government units. As an employee of the broker, the sales associate is responsible to the broker for the result of his or her work and for how and when he or she performs it. In other words, in an employer/employee relationship, generally speaking, the broker can dictate such things as office hours, floor duty time, general office procedures, and work schedules; and the sales associate must follow the broker’s requirements. However, to gain this degree of control of the sales associate’s activities, the broker takes on additional expense and accounting duties. These duties result from the federal tax consequences of the employer/employee relationship. The broker must withhold Federal and State Income Tax, pay F.I.C.A. contributions, and provide Unemployment and Worker’s Compensation Insurance for his or her employees. Also, in this working relationship, the broker may have additional legal liability for the actions of the employees. | |
| (b) | EMPLOYER/INDEPENDENT CONTRACTOR RELATIONSHIP – Under this working arrangement, the broker has less control of its sales associates’ activities. At the same time, the broker avoids some expenses, accounting responsibilities to various taxing units of the government, and other possible legal implications. As an independent contractor, the sales associate is responsible to the broker only for the results of the sales associate’s work, not for how and when he or she works. In fact, the sales associate is an independent business person controlling his or her own work hours. The sales associate is responsible for his or her business tools and other necessary work-related expenses. When the independent contractor receives a commission, the broker does not withhold income taxes. Instead, the responsibility for federal and state income tax is solely that of the sales associate. |
THE WRITTEN AGREEMENT BETWEEN THE BROKER AND THE SALES ASSOCIATE: THE AFFILIATION CONTRACT
In real estate practice today, the employer/independent contractor relationship is much more common than the employer/employee relationship. However, whatever the relationship, the broker and the sales associate must reach a written agreement specifying the terms of the sales associate’s compensation. The agreement must also express how the sales associate will receive compensation for work begun but not completed before the end of the affiliation with the broker, and what accounting for the broker’s properties, listings and prospects the broker will expect from the sales associate upon termination of the affiliation.
Beyond those requirements, the affiliation agreement can deal with other issues that affect the relationship between the broker and the sales associate. For example, if the broker wants to give the sales associate authority to sign listing and sales contracts on the broker’s behalf, he or she must give the associate that authority in writing; and the affiliation contract would be a logical place to do so. Without such specific written authority, a sales associate may not sign a listing agreement or any other contract on behalf of a broker. The Georgia Real Estate Commission does require that this agreement be in writing, that the agreement specify how the associate will be compensated, and how the broker’s property and listings will be accounted for, but it does not otherwise regulate nor enforce the provisions of these agreements. If the broker and the sales associate disagree about a commission or any other provision of the affiliation contract, they must settle that dispute between themselves or, if necessary, in the courts.
THE BROKER’S RESPONSIBILITIES UNDER A LISTING AGREEMENT
The broker has two general responsibilities to the seller under the listing agreement. They are (1) disclosure of efforts taken on the seller’s behalf, and (2) the provision of advice, direction, and guidance to cooperating brokers. As agent for the seller, the broker acts in a position of extreme trust and confidence. Thus, the broker must disclose to the seller every act and effort taken to sell the property. Even though the sales associates may handle the day-to-day marketing efforts, the broker should be available to make decisions that ensure the best interest of the seller. Such activities as reviewing offers to purchase, arranging cooperating agreements with fellow brokers, drafting and/or reviewing advertisements, and overseeing multiple‑listing participation are examples of the broker’s likely involvement. While the broker may act through sales associates to service the listing, the broker always remains responsible for the acts of those associates. Consequently, the broker must provide direction, advice, guidance, and training for the firm’s affiliates. In this way, the broker knows that he or she is engaging knowledgeable sales associates who have the best interest of the client in mind.
THE SALES ASSOCIATE’S RESPONSIBILITIES UNDER A LISTING
As agent of the broker, the sales associate has a dual responsibility: to the broker and to the broker’s client, the seller. Therefore, the sales associate’s duties include disclosure and discretion. The sales associate has the responsibility to disclose to both the broker and the seller every step taken in the transaction. Disclosure should be in writing and may include:
| (a) | a list of prospects who have looked at the property; | |
| (b) | copies of newspaper, internet and other advertising materials; | |
| (c) | estimates of sales price and the list price; and | |
| (d) | the status of all offers and counteroffers. |
The sales associate responsible for marketing the listed properties prepares advertising copy for the broker’s review, shows the property, communicates with other sales associates who wish to show the property, and negotiates with prospective buyers. The actions of the sales associate can make the broker and seller, as well as the sales associate, liable for breach of confidentiality, unfair business practices, breach of contract, and a host of other claims. Thus, it is essential that the sales associate use discretion, not give away any of the seller’s bargaining position, and treat everyone fairly and honestly.
INFORMATION NEEDED TO HELP SERVICE A LISTING
After the seller signs the listing agreement, the sales associate directs his or her attention to marketing the property. He or she assembles as much information as reasonably possible about the property and prepares it for distribution. The relevant information falls into three major categories: physical information on the property, financial information about any existing loans on the property, and information about expenses associated with owning and using the property, such as ad valorem taxes and utilities. If the listing is on an income property, the sales associate will probably need to gather income as well as expense information and perhaps prepare a “pro forma” or operating statement.
| (a) | SELLER’S PROPERTY DISCLOSURE STATEMENT – The seller should complete and sign a form known as a property disclosure statement with detailed information about the property. The use of this form affords some degree of protection to the broker, the seller, and associated agents from lawsuits concerning disclosure of important facts. The listing agent may give this form to a prospective buyer.
In the area of disclosing facts about the listed property, the Georgia legislature has enacted specific legislation. In 1989, partly in response to hysteria about HIV and AIDS, the legislature passed an act commonly known as the Stigmatized Property Act. (See Chapter 1, Section 16 of Title 44 of the Official Code of Georgia Annotated.) The legislation gives sellers and licensees a clearer definition about what is a material fact concerning a property that the seller and the sales associate need to tell the buyer. The law originally addressed two major issues — property occupied by a person with an infectious disease, and property which was the site of a homicide, suicide, or other felony. Section (a)(1) of the law contains the following language: No cause of action shall arise against an owner of real property, a real estate broker, or any affiliated licensee of the broker for the failure to disclose in any real estate transaction the fact or suspicion that such property: |
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| (A) | Is or was occupied by a person who was infected with a virus or any other disease which has been determined by medical evidence as being highly unlikely to be transmitted through the occupancy of a dwelling place presently or previously occupied by such an infected person; or | ||
| (B) | Was the site of a homicide or other felony or a suicide or a death by accidental or natural causes; provided, however, an owner, real estate broker, or affiliated licensee of the broker shall … answer truthfully to the best of that person’s individual knowledge any question concerning the provisions of subparagraph (A) or (B) of this paragraph. | ||
| Keeping proper balance between protecting clients’ rights and disclosing to customers material facts are not always simple or easy. For example, paragraph (a)(2) of this same Code section says no owner, broker or agent is required to answer any question which would violate the Fair Housing Act or other federal or state law. The Georgia Attorney General’s interpretation of the federal Fair Housing Act is that the Act “prohibits a real estate license from disclosing that an occupant of real estate has AIDS or HIV-related illnesses,” and the rulings of two federal district courts state that “the FHA’s proscription against handicapped discrimination in the sale of real property applies to carriers of AIDS.” However, while that opinion of the Attorney General and the court decisions prevent licensees from answering questions about a property’s association with persons having AIDS or HIV-related illnesses, they do not appear to remove the licensee’s duty to answer truthfully to the best of his or her knowledge when questioned whether a property was the sight of a homicide or other felony or a suicide. | |||
| (b) | LOAN INFORMATION – In almost every real estate transaction, financing is a vitally important factor. A buyer must usually secure a new loan on the property, and the seller’s proceeds from the sale of the property will depend on the outstanding loan on the property at the time of sale. Therefore, an effective sales associate will learn everything possible, as soon as possible, about the loan on the property being listed for sale. An easy way of doing this is to request in writing from the lender the specific information about the seller’s loan. Most lenders require that this information be requested by the seller, unless he or she has given the broker written authorization to communicate directly with his or her lender. | ||
| (c) | OTHER PERTINENT INFORMATION – In helping to pre-qualify prospective buyers so that they understand what they can afford to buy, obtaining information on property taxes, insurance premiums, and utility charges is essential. The future property owner will have to pay property taxes to maintain ownership of the property, and lenders (and prudence) demand that the owner carry insurance on the property. Lenders often collect funds to place in an escrow to pay these expenses along with the principal and interest payment on the mortgage. Informed buyers also realize the importance of information on utility charges since they will obviously have to make those payments in order to use the property.
This financial information will help to sell the property since the sales associate can better answer questions from prospects about the true cost of owning the property, including not just the amount of the loan, but also the property taxes, insurance premiums, and other necessary expenses. The information about the loan itself will also allow the sales associate to calculate the seller’s proceeds from the sale. If the property is subject to mandatory condominium fees or property owner’s fees, such fees will be an additional cost of ownership to the buyer. Consequently, this information is also very important to the sales associate in prequalifying the buyer and in answering the buyer’s questions about the expenses of home ownership. |
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THE SALES COMMISSION
The broker earns the commission when the broker’s efforts produce a buyer “ready, willing, and able” to purchase on the seller’s price and terms or on terms acceptable to the seller. A “meeting of the minds” takes place when the buyer knows that the seller accepted his or her offer (or vice versa). The amount of commission is always negotiable between the broker and seller. The commission should be provided for in one of three contracts: the listing contract, the sales contract or the buyer agency contract.
| (a) | LISTING CONTRACT – A listing contract normally provides for payment of a commission in a stated amount or in a percentage of the sales price in the event the broker performs according to the terms of the contract. The listing contract also will generally contain such information as the list price, the terms of sale, permission for the broker to advertise the property for sale, and other important information the broker and seller feel is necessary to market the property. To establish performance according to this agreement, the broker must meet all provisions of the contract exactly. For instance, if the listing contract specifies a list price of $250,000.00 to be paid in installments to the seller, an offer for $248,000.00 or for $250,000.00 to be paid in cash, does not fulfill the specifics of the agreement. For the broker to earn a right to the commission, he or she must produce a buyer ready, willing, and able to buy under the seller’s terms and who actually offers to do so. However, if the seller accepts an offer that is less than the stated price or under different terms, under most listing agreements the broker has performed his or her duties and is due the commission. Since exclusive listing contracts must contain a definite expiration date, the licensee also must find the ready, willing, and able buyer during the listing term. | |
| (b) | SALES CONTRACT – Besides earning commission rights under a listing contract, it is possible to earn a commission through a negotiated sales contract. Most preprinted contract forms include a blank to be filled in with the commission rate the seller agrees to pay at closing. However, if the commission is set forth in a listing agreement or other contract, the sales contract should specify this. | |
| (c) | BUYER AGENCY CONTRACT – The buyer agency contract is the agreement between the broker and a buyer who hires the broker’s services in finding a property. The buyer agency contract may specify that a commission rate will be paid by the buyer to the broker, or more commonly, that the buyer’s broker will share in the listing broker’s commission. |
OBTAINING THE COMMISSION IF THE CLIENT REFUSES TO PAY THE BROKER
Occasionally it is necessary for a broker to go to court to enforce commission rights. When the client’s refusal to pay the commission makes such action necessary, the broker, not the sales associate, makes the decision to sue. In order to enforce a commission claim in court, the broker generally must allege and prove three things:
| (a) | The broker and any sales associates involved in the transaction held valid real estate licenses at the time they earned the commission. | |
| (b) | The broker and any sales associates had authority to negotiate the sale as agents of the seller, and the seller promised to pay a commission if the broker performed. Consequently, brokers use written listing contracts in which the seller appoints the broker as his or her agent and agrees to pay a commission for performance. Written evidence of this form is invaluable in court. | |
| (c) | The broker was the efficient and procuring cause of sale. This requirement means (1) that the broker produced a buyer ready, willing, and able to buy under the seller’s terms even though the seller refused to sell, or (2) that the broker was the proximate cause of the sale. Proximate cause of sale means the broker did something (for example, advertised the property, showed the property, placed a “for sale” sign on the property) that set into motion a series of events which resulted in the sale of the property. This third requirement may be waived, however, in the case of an exclusive right to sell listing agreement where the broker is entitled to its commission even if not the procuring cause. See Chapter 23 for a discussion of open listing vs. exclusive listing agreements. |
AGENCY DISCLOSURE
BRRETA requires each brokerage office to develop and maintain an office brokerage relationship policy. The broker or sales associate must disclose this policy to a prospective seller before entering into certain types of listing agreements which trigger the disclosure. See Brokerage Relationships in Real Estate Transactions Act (BRRETA); (O.C.G.A. § 10-6A-1).